ACCT CH.1-2 notes

Faithful representation requires information to have which of the following three characteristics?

Free from material error Neutrality Completeness

Journal entries are instantly posted to the general ledger

computerized system

Positive income is consistent with effectiveness of management

confirmatory value

Identify the three most common forms of business organization.

corporation. proprietorship. partnership.

Shannon Corporation issues common stock for $25,000. Recording this transaction will include a

credit to common stock.

An account should have an account title, account number, a place for the date of the transaction, and two columns for

debits and credits.

An advantage of the corporate form of business

does not have to pay its creditors.

When a company earns net income, its retained earnings:

increase

Undistributed profits that have accumulated in the company over time are called ______ earnings.

retained

Predictive value and confirmatory value are components of which fundamental qualitative characteristic?

Relevance

Faithful representation requires that information is complete, neutral, and

free from material error

Consistent with the ___________ recognition principle, companies record revenue at the time goods are provided to customers.

revenue

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows.

The type of information included in an account includes

the account title. columns for debits and credits.

The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as _________.

posting

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer.

The term debit means increase, and the term credit means decrease.

False

The two functions of financial accounting are to measure business activities and prepare tax returns.

False

Which of the following contains a list of transactions affecting each account and the account's balance?

General ledger

Which of the following are attributes of FASB?F

Private sector organization Full-time board members Independence

Which of the following is an external transaction?

Purchasing supplies from a vendor

Which type of account is increased with a credit?

Revenue

What are the three components of retained earnings?

Revenues, expenses, and dividends

Companies communicate information about their business activities primarily through

financial statements

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

operating activities. investing activities. financing activities.

The purpose of a general ledger is to

provide in a single location the list of transactions affecting each account and the account's balance.

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for the decision making information should possess the fundamental characteristics of

relevance and faithful representation.

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n)

trial balance

Which of the following financial statements shows a firm's financial position on a particular date?

Balance sheet

Which of the following appear(s) on the balance sheet?

Accounts receivable common stock utilities payable

Which of the following are external transactions?

Borrowing money from the bank Purchasing inventory from suppliers Paying salaries to employees Selling products to a customer

The three most common forms of business organization are sole proprietorship, _________, and __________.

Corporation partnership

Which of the following appear on the statement of stockholders' equity? (Select all that apply.)

Dividends Net income Beginning balance of retained earnings

_________is the common abbreviation for the board that currently establishes financial accounting and reporting standards in the U.S.

FASB

A balance sheet is a list of all accounts and their balances showing that debits equals credits.

False

A ledger provides a chronological record of all transactions affecting the firm.

False

Analyze the following postings. Which of the following is the transaction that required this posting?

Issue common stock to investors

Which of the following represents a common advantage of a computerized accounting system?

Journal entries are instantly posted to the ledger

Which of the following includes the list of transactions affecting each individual account and the account's balance?

Ledger

The impact of financial accounting information on investors' and creditors' decisions is closely related to the concept of:

Materiality

_______ reflects the impact of financial accounting information on investors' and creditors' decisions.

Materiality

Which qualitative characteristic requires that financial information should not influence decision making to achieve a predetermined result?

Neutrality

Consistently increasing income helps forecast the company's ability to generate future cash.

Predictive value

According to the conceptual framework, for accounting information to be relevant, what two qualities must it possess?

Predictive value Confirmatory value

Financial information that is immaterial in amount or nature need not be reported under GAAP.

True

Which of the following aspects relate to the information provided in an income statement?

ability to earn a profit from its operations during the current period

A(n) ______ is maintained for each financial statement item, whereas a(n) ______ contains all of the accounts of the company.

account; general ledger

Management discussion and analysis and note disclosures to the financial statements are included in the _________________.

annual report

Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to

common stock

The two components of stockholders' equity are

common stock and retained earnings

Credits increase revenues, whereas debits increase

expenses and dividends.

Salaries paid to employees for the month is a(n) _______ account that appears on the _______.

expenses; balance sheet

A balance sheet is a list of all accounts and their balances showing that debits equals credits.

false

___________ serves as an important role by providing information useful in investment and leading decisions.

financial accounting

The private sector organization that is currently responsible for setting accounting standards in the U.S. is the

financial accounting standards board (FASB)

A chronological record of all economic events affecting a firm are recorded in a(n)

journal

A transaction is initially recorded in the general ____________, and then subsequently posted to the general ____________.

journal ledger

Journal entries are posted periodically to the general ledger

manual sytem

Financial information that may impact investors' and creditors; decisions is referred to as __________ and must be reported under GAAP.

material

The two roles of financial accounting are to:

measure business activities of the company. communicate information to external parties for decision making purposes.

The characteristic that a new accounting standard should not favor one group of companies over others or achieve a particular social outcome is an example of

neutrality